It's Real Estate Fraud Week at L.A. Land; Day One: A Cash-Back Come-On in Sherman Oaks

Good morning. We noticed our in-box was filling up with fascinating (to us, at least) stories about real estate fraud. So we made an executive decision: This is Real Estate Fraud Week at L.A. Land.

First out of the box, a good one. Kate, the voice behind the quirky, Valley-based blog "May 5 & Everything After," writes about an agent who was determined to give her $40,000 cash back at closing -- even though she didn't want it!

Read the whole thing here, it's worth your time. Kate describes her conversation with an agent about a house in Sherman Oaks -- a house Kate feels is worth about $725,000.

"Me: You want me to write an offer for $800k, and take back about $40k, so I am giving the seller only $760k.

Agent: Yes! Yes!

Me: But I pay 5% commission on that higher sales price?

Agent: Well... yes but you are getting cash back for your closing costs and improvements...

Me: Again, I am paying 5% commission on $800k instead of $760k, and my property tax basis will be $800k instead of $760k?

Agent: Well, the property tax is only 1.25%

Me: Every year."

So what did Kate finally tell the agent? "Trust me, I know how it works: You get a bigger commission and you get to delay the inevitable price crash in your little pocket neighborhood. The sales data for the area will reflect artificially high prices so honest people with decent incomes and good credit scores who used to be able to afford the area no longer can. And what do I get? A $40k loan that I don't want or need. As a bonus, I will not only pay interest on this wholly unnecessary $40k loan but I will pay an additional $2,000 sales commission to you and my agent up front because that $40k is being treated like purchase money. But that's not all! No! I will also have to pay an additional $500 in property taxes every year I own the house because the records will reflect an artifically high purchase price."

You go, Kate.
Send us your stories of fraud, shady deals and unethical behavior. E-mail story tips to lalandblog@yahoo.com
Photo Credit: May 5 & Everything After

Comments

[Martin]

Good for you, Kate!

I would report this agent to the San Fernando Valley Board of Realtors. If there is no action, I would contact the state's real estate broker licensing division. Realtors like this should be stopped.

I believe many realtors are true professionals who would never involve a client in such an arrangement. But every industry has bad eggs.

Equally important, kudos to Peter Viles for including this item in his blog.

[Kaye Thomas]

If the story is true... then the agent should be reported to the local board of REALTORS® and to DRE... no excuse for this.
Frankly I am aghast.. I have run across some not too bright agents over the last 28 years but I really can't imagine an agent doing this.. it makes no sense.. the whole story borders on silly and just downright stupid..

[hesitant buyer]

I have heard of this kind of arrangement at several open houses. It seems to be more common than not. Is it legal?

I agree with Kate, I would not want to pay higher taxes on the property for the entire time I own it just to beef up the agent's cut. Agents have really ruined their own reputation in LA. I can't wait for a way to cut them out of the transaction.

[Reidel]

I'll bet that agent and the owner are kicking themselves now. They're bound to be kicking even harder if they don't unload soon.

[Monique Bryher]

Comment to HesitantBuyer:

The agent described in the above scenario is a crook who is attempting to commit fraud against the lender, and should not only be prosecuted for her illegal acts, but lose her license. If the buyer had participated, SHE would be guilty of fraud as well.

Please don't assume that because there are dishonest agents that therefore all agents are dishonest. Any more than dishonest doctors, accountants, police, car mechanic, and yes, even home buyers. The latter have their own scams, some of which result in the agent being ripped off.

Any professional who is competent, diligent and honest is worth his/her weight in gold.

[Crystal L. Cox]

There is No Consumer Protection in Real Estate. Consumers NEED to know their rights. Complaining to a Realtor board will NOT help you. The NAR is Self Regulated and is NOT out for the Real Estate Consumer.